293 Sonja Stuchtey - Have billions flow into regeneration by having accountants agree that it is an investment, not a cost

A conversation with Sonja Stuchtey, co-founder of The Landbanking Group, about innovative financial strategies, accountancy standards and rules, reliable sourcing, better quality and lower prices, investing in the value chain and more.

Let’s say you are an orange juice or chocolate bar producer: your margins are under pressure because the costs of buying raw ingredients have exploded the last few years. What do you do? In any other business you would likely invest in your supply to secure reliable sourcing, better quality and potentially lower prices. Why haven’t we done that in regen ((with some exceptions of fully vertically integrated brands)? Now it seems possible for companies to invest in their value chain so to allow orange farmers to make regen changes in the practises to future proof them. 
How? Crucially it comes back to treat it as a long term investment and not as a short term cost which will hurt you margins and, thus, annoy your shareholders. Treating investments (which btw we need billions) in regen as an investment and not a cost sounds so trivial and simple, but it takes a whole lot of technology to measure, report and a lot of talks with the big four accountancy firms to get this done. 

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The above references an opinion and is for information and educational purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.

https://foodhub.nl/en/opleidingen/your-path-forward-in-regenerative-food-and-agriculture/

Transcript

Speaker 1: 0:19

Let's talk about something potentially very boring, but actually super necessary and even interesting. So bear with me Accountancy standards and rules. Let's say you are an orange juice producer or chocolate bar producer. Your margins are under pressure because the cost of buying these raw ingredients has exploded in the last few years. What do you do In any other business? You would like to invest in your supply chain to secure reliable sourcing, better quality, potentially lower prices. But why haven't we seen that done in region, with some exceptions, of course, to fully vertically integrated brands. But now it seems possible for companies to invest in their supply chain. So to allow these orange farmers to make region changes in their practices, to future-proof them, but, crucially, to treat this investment as a long-term investment and not as a short-term cost which will hurt your margins and thus annoy your shareholders. This sounds so trivial and simple. Let's treat investments which we, by the way, need billions of in Regen as an investment and not as a cost. But it takes a whole lot of technology to measure, report and a whole lot of talks with the big four accountancy firms to get this done. This is what we explore today.

Speaker 1: 1:30

This is the Investing in Regenerative Agriculture and Food podcast investing as if the planet mattered, where we talk to the pioneers in the regenerative food and agriculture space to learn more on how to put our money to work to regenerate soil, people, local communities and ecosystems, while making an appropriate and fair return. Why my focus on soil and regeneration? Because so many of the pressing issues we face today have their roots in how we treat our land and our sea, grow our food, what we eat, wear and consume, and it's time that we, as investors big and small and consumers, start paying much more attention to the dirt, slash, soil underneath our feet. To make it easy for fans to support our work, we launched our membership community and so many of you have joined us as a member. Thank you. If our work created value for you and if you have the means and only if you have the means consider joining us.

Speaker 1: 2:20

Find out more on gumroadcom slash investing in RegenAg that is, gumroadcom slash investing in RegenEgg that is gumroadcom slash investing in RegenEgg or find the link below. Welcome to another episode. Today, we talk about how to restore and preserve nature by creating a new asset class for regeneration at scale called Nature Equity. Welcome, sonja.

Speaker 2: 2:53

Thank you, Welcome Kurt.

Speaker 1: 2:56

And starting with a personal question that we always like to ask at the beginning of these conversations how did you end up focusing on soil and spending most of your awake hours, let's say, focusing on creating a new asset class for regeneration at scale? What led you to this?

Speaker 2: 3:13

Let me take a few steps back Basically in my 27, almost 30 years of professional life. I've only briefly been an employee in a strategy consultancy. I've always been an impact entrepreneur, trying to solve, urging really, really burning issues from an entrepreneurial point of view. And Soil is a burning platform. When you go out and you look at the fields and I've started to do that as a non-agronomist with more open eyes than ever I can see now scaring indications of how we have wrenched out the soil that we're actually living on. And also being a mother seeing generations to come relying on the soil to feed themselves and the generations after.

Speaker 2: 4:06

I'm scared. I'm honestly scared and I think this is the most precious treasure we have and it's showing how vital our ecosystems are and we need to do something. I just came back from an important meeting in Cape Town. We need to do something. I just came back from an important meeting in Cape Town, so I had the privilege to fly over a wonderful, precious and nature rich continent, I thought, and below me were dry fields, dust fields, and it just underlined the urgency to change the way we treat the soil we live on.

Speaker 1: 4:46

I think many people can relate to that and then get to work, which is why we run this podcast to put a spotlight on people that, instead of getting desperate with that message or maybe do something very relevant which is starting their own little I always call it a little piece of paradise. They buy a bit of land and they try to be as regenerative as possible, but we try to put the spotlight on people that go beyond that and say, ok, how do we change the system? Or how do we do this at scale, which is specifically in your tagline as well? So how did the land banking group come about? And, of course, we're going to unpack what the land banking group is.

Speaker 2: 5:26

Well indeed. So, as I told you, I've been an impact entrepreneur all my life, focused first on science, education, then on combating mis and disinformation in social media. So I started in other contexts, more the S and the G of ESG, to use technology for good and to develop scaling and systemic solutions. And looking at the soil, looking at nature, our nature loss, the development of the climate change hazards and the threat that's coming along in this multi-crisis, I was asking myself how can we use technology to have a scaling impact for the better? And, together with my partner in life and in the land banking group, martin, who has been working in sustainability in his past 20 years, we sat together during COVID, where a lot of good ideas have evolved with the time.

Speaker 2: 6:26

We had to just step back and not keep going with business as usual and say what can we do to really tackle this least understood and least systemically addressed issue of proper land use decisions, data-based, systemically right land use decisions that result in choices that are regenerative and can last for generations to come? And this has been the moment when we digged into land use choices, into ecosystem types, into ecosystem outcomes, the stocks, the flows, unca what does natural capital really mean? How is it part of an integrated capitals approach? I'm for the last two or three years, part of the supervisory board of the Capitals Coalition and really appreciate their work on integrated capitals. Understanding that productive capital profits is just one part of defining success, that human, social capital, and particularly natural capital, is an absolutely essential part to keep us going and to really measure success as a company, as individuals, as institutions.

Speaker 2: 7:48

So we asked ourselves how can we use these concepts natural capital, accounting technology, the improvement of earth observation, remote sensing, the introduction of AI and the development of machine and deep learning opportunities in a new way to scale improvements in agriculture and in soil treatment and land use choices?

Speaker 1: 8:17

Which sounds like a massive undertaking. So you're in COVID, you're studying and going deep in this, and then where do you start like what, what's the first threat you start pulling because, um, and and also, how do you make sure it doesn't change after, let's say, the first lockdown or the second is done and we let's say it's been for many very easy to slip back into, uh, normal or what was it before? We all thought we were going to change everything in COVID and then, after we all stopped baking, or almost everyone, we resume flying in conferences and going far away on holidays, etc. I mean, many people have made meaningful changes, but also many haven't. So how, how did that? Um, how did it stick the?

Speaker 2: 9:01

biggest choice we made, which makes us stick, is that Martin and I, we both quit our well-paying jobs and quit our careers to start the land banking group, so there was no way back. We took that decision to put ourselves fully, full heartedly into this endeavor at our tender age. So we are here to stay and to really drive this forward. And what really convinced at least me to to go down that route is not only the, the burning platform I talked about, and the urgency of the issue, but just before I've been a director with Alex Partners, which is a consultancy supporting companies in very difficult times restructuring and I had these conversations with private equity funds who were keen to invest into nature as part of supply chains in their portfolio, but they didn't really know how. And on the other hand, I saw this absolute need and this growing quest for massive capital to restore and particularly also protect and conserve existing ecosystems in their small and remaining wealth. And I found that there is a disconnect of lingo, of concepts, of timelines, of sizes. So actually there is a supply and there is a demand, but they can't meet because it's not being translated properly. We need an infrastructure and that's basically what we are building or have established with a land banking group. We need an infrastructure that understands the delivery of ecosystem outcomes, and I deliberately say outcomes. It can be be stocks, it can be flows, like the services. So these ecosystem outcomes from various different ecosystems when we talk and talk about region ag, it's just one ecosystem. There are peatlands, there are mangroves, there are forests there particularly, there are tropical forests, there's agroforestry. They are all very, very important for the protection of the last remaining healthy ecosystems we have and they're important also to restore the ecosystems agriculture is embedded in.

Speaker 2: 11:39

We have this on the one hand, and it's usually a project size.

Speaker 2: 11:50

It can be a bigger project, like we have particularly in carbon markets, but it can also be smallholder farmers with half a hectare or a hectare.

Speaker 2: 11:55

They're also producing and specifically them, I mean 80% of the farms are small. They're producing ecosystem outcomes and they have no way to enter this market. That is actually on the other side, on the buyer side, dominated by bigger investors, and if we really want to unleash big amounts of institutional money, we need to have risk, diverse portfolios of investment, and this has not been possible the way nature investment functions before we started. So the ambition has from the start been how can we build this bridge between supply and demand? How can we repackage what nature delivers into products that capital markets understand? And this has been basically the birth of the land banking group and of the nature equity concept, which is trying to repackage various very different, very local, very specific outcomes into understandable contracts for investment nature capital markets, like if you had to describe what's, what is the current or what was and is the current status quo, um in, in terms of um potential investments into nature, what would you?

Speaker 1: 13:33

how would you describe that?

Speaker 2: 13:35

so most investments we currently see are connected to um, to land rights, title deeds. There is the acquisition of hectares, thousands, hundred thousands of hectares of land that are either being regenerated or held or exploited. This is the usual relation we have to investment in nature. What we try, and what we're doing with nature equity, is to disentangle the underlying piece of land from the natural capital that is being developed. So it's not a contract that includes some title deed, some rights on the property itself, some title deed, some rights on the property itself, but on the natural capital that's being measured.

Speaker 2: 14:28

And the second thing you can say okay, that's just like carbon markets, they're also just a right, it's you don't buy them, you don't buy.

Speaker 2: 14:34

Buy carbon, you don't buy. Buy the um, the um, co2, on the emission stop, but um, and and that's basically basically the concept that we are building on, yes, we can actually buy a right like a patent or a brand, without owning some physical underlying. Just a cough, so we can buy, we can buy a right without buying the physical underlying, but it doesn't need to be linearly just one thing. Maybe this is a bit the difference to carbon markets that it's more the outcome, the measured outcome, that it's more the outcome, the measured outcome, and we insist on a natural capital account which is always linked to a piece of land, to a plot. It always contains the four scientifically defined dimensions of ecological health or of the stocks we talk about in UNCEA, which is the hydrosphere, pedosphere, the atmosphere and the biosphere. So it's soil, it's carbon or methane, so the atmospheric aspects of a piece of land, it's biodiversity, which is literally what's above it, right, exactly, yeah, exactly.

Speaker 1: 16:01

And then it's the the column up, basically the column exactly right, exactly, yeah, exactly.

Speaker 2: 16:05

and then it's the column up, basically the column exactly, and it's the biosphere, which is usually biodiversity, but it has many, many, many vectors to it, and then of course, it's it's the water, and the later is a super different, super, super important part if we talk about agriculture and and the health and regenerative power of a piece of land.

Speaker 1: 16:26

And so, to try to make that concrete, can you walk us through an example of how that would look like in practice?

Speaker 2: 16:35

So, for example, if you onboard a piece of land of yours and it has maybe some, some pastures, a bit of row crop, some forest to it, then you have these different ecosystem types on your plot. So it's different analytic or analyzed plots by LendCover. Let's take these three examples it's Pasture, it's Crop and it's Forest. So you would have your project on Lendlerio, which is the platform, and it is containing three what we call polygons. They are land type or focused on one land type, and they are being analyzed properly according to the land type, because crop is analyzed in a bit of a different way than forest, in a bit of a different way than pasture, because the ecosystem models that are behind it are different.

Speaker 2: 17:44

And then you get, as a result, the measurement of carbon stored in the ground, carbon stored in woody biomass, biodiversity according to specific sectors. For pasture, for example, how often have you mown the land and how much biodiversity have you permitted to evolve in crop? How much buffer zone have you introduced in forest? How many different types of trees do you have on your piece of land? What's the water holding capacity? How much soil moisture can be retained, also in times of drought? And that's been documented in the Natural Capital Account.

Speaker 1: 18:29

And how do you get that data in? Because some of it I think I mean remote sensing plays an important role. But the buffer zones, or maybe even the mowing like, how do you get that detailed info in? Is that me as a land steward or owner uploading that, or how would that work?

Speaker 2: 18:47

Now that's a wonderful question. It's a mix, it's always a balance. So we're trying to get as much as possible covered by remote sensing, just for cost reasons, so that is really feasible also for smallholder farmers to participate. Then there is data. For example, the mowing you can quite well identify from remote sensing. You can see the difference before and after. So it's just the frequency of the overflight that is important.

Speaker 2: 19:21

But there are other dimensions, like particularly soil, carbon and particularly certain vectors of biodiversity that are more difficult and where you need in situ data.

Speaker 2: 19:32

So it's a mix of data that we collect with partners, with in situ data partners for bioacoustic soundscaping, edna, but also soil samples, for bioacoustic soundscaping, edna, but also soil samples. And we try to be very specific and have samples for representative areas so that we can train our AI models that are underlying the analysis. And then, as a result, we don't give you currently we still give you one number, but you see that there is actually a range which represents the confidence interval. It's not just one result, that is true, but we are working with models that we transparently communicate and plus sorry, just to add to this. So we triangulate remote sensing data, data from partners, public data, public information on mappings and, of course, data that we get on the ground from land stewards. That is introduced, as well as triangulation data to just continuously refine the confidence interval of the data we can, we can disclose and then we get to the other side, like why, who's on the other side, in the sense of, uh, of companies, etc.

Speaker 1: 20:53

What we've seen with with the narrow piece, but still the carbon piece, um, that it's difficult or money many companies have struggled to find the customers on that side. I mean, the measurement might be possible getting farmers on board or land stewards or different ecosystems that's more technical issue or getting out in the field to measure. But then, of course, if you build a bridge, it's nice to land somewhere where the bridge can be connected on the other side. What about the other side? Who is there there? Who is interested? Um? Why would a land steward? Um participate in this? Um from from a financial perspective as well, or from maybe a supplier perspective, if they supply to that specific company?

Speaker 2: 21:37

this is an evolving market, um, and I can tell you where we are now and what we see that is happening and what we hope that is happening. So let's take this and make this a threefold step. We are currently seeing that there is quite some urgency in value chain investments in nature. This is not only agri-food, but agri-food is a good example. There are a couple of crops and we all are aware of them that have already grown to become a scarcity or at least highly volatile. The cocoa price has tripled in the last 12 months. Oranges have tripled in the last two years in price. Same is true for olives. For melons years in price. Same is true for olives for melons.

Speaker 2: 22:29

We know, everybody who is involved in this market, that a lot of agri-food supply chains are under stress, and most companies are very aware that the one and only chance they have to continuously ensure their supply chain is to invest into a more regenerative practice. And whilst paying now for a higher price for a crop that actually is not yet regeneratively farmed uh, farmed we offer them an opportunity to to this um, detangle the timelines. You pay now your commodity price, as you do, and are competitive with your pricing, but at the same time, you're investing into improved practices, into future regenerative crops, through investment in natural capital. So these are companies who are ready to support their supply chains in this transformation and to build up in a better nature substance, a better stock of healthy nature to get their crops from in the future. And that's the nature equity contract that they have usually within their supply chain, which makes more sense.

Speaker 1: 23:54

Yeah, if you're sourcing oranges and the price is tripled, or olives for olive oil or table olives, and it makes sense to invest in your own supply chain like you would in any other business, but at the same time, it hasn't really happened that much, weirdly enough, like in interesting. Why has it been? Yeah?

Speaker 2: 24:13

I think, because it's. It's a multi-stakeholder problem and you would have to introduce some kind of process with every single supplier and usually those supply chains are super fragmented. So even if you are buying oranges, if you're buying cocoa, you usually don't know the originator our process of really making it end-to-end transparent and disintermediation of this supply chain.

Speaker 2: 24:50

Transparency so actually, as a buyer in the end, you can look into the piece of land and the ecological health and development of your supplier in the beginning and you can manage hundreds, thousands, hundred thousands of polygons, like you would manage an ETF account. So it's a management issue, it's a transparency issue, it's a contracting issue and all of it is facilitated digitally by the infrastructure we have built.

Speaker 1: 25:21

And so that was the piece. Was that the piece missing? In that sense? Because I think for a long time we've been saying, like the commodification of agriculture is an issue, in a sense, like you're making orange juice and you don't really know, I mean, of course, unless you start digging where the oranges really come from. Or the same with cacao, or like which plot, et cetera.

Speaker 1: 25:43

Of course, now there's some legislation, uh that came in especially for tropical, uh, for a few tropical products, which really force you to to know that, which creates a lot of buzz and and and scarcity. But at the same time, if you consider that in other sectors, I don't know, and especially in the higher end tech sector, of course, like asml, um, like korea, like many, like one of the most successful dutch companies created a lot of like their infrastructure around them to make these high-end machines, to make all the chips in the world, like is very nearby, like they know exactly which piece comes from, where and why. Because they've created all of that, not because everything is vertically integrated, which might be a solution, but actually it's very close to them and they are aware of all the small companies around them that supply very specific things and somehow in food we treated every orange the same. It doesn't really matter if it comes from dominican republic or from spain. And now we're being uh, not now that the boomerang comes back.

Speaker 1: 26:37

So how open are these companies? I mean, of course they have a problem, so they might be open to it. But they start to really decommodify now, like, let's say, in cacao, that's been a system we built over the last 50 years. It's not so easy to detangle and say, ok, now we're going to take off all the in-between people and companies and we're just going to go straight to Ghana or Ivory Coast, we'll bring it straight to Amsterdam and then we're fine. Of course it's not that simple. Of course it's not that simple. Like, how is the urgency now there to start really making changes in value change or not yet? Or what do you see there?

Speaker 2: 27:11

First of all, I really love this ASML example. Actually, this is exactly what we're seeing. So they are not necessarily integrating this entire supply chain. Not necessarily integrating this entire supply chain. This is not even necessary, because you can get the transparency even without integrating those steps into your supply chain, because when we have measured the biophysical dimensions, they're hashed and stored and are immutable, so you can actually let them travel along the value chain all the way and you can share the insight into those data points and into the uplift and the maintenance of natural capital all the way along the supply chain. And this has definitely been a missing piece to first of all get this knowledge to the first.

Speaker 1: 28:04

Which is now possible because of remote sensing and other. It's still not fine, but it's cheaper at least to measure soil, carbon and other things Exactly.

Speaker 2: 28:13

It's way cheaper. You have these ways of transferring it. You have the hashing logic which makes it immutable, so you can trust the data along the way.

Speaker 1: 28:25

Am I hearing you trying to say blockchain without saying blockchain? No, I'm not where that's.

Speaker 2: 28:29

Blockchain is one solution to hash. You can have hash graphs. We do it in a tamper-proof way, so it's not distributed ledger currently, it's technology. The technology in itself makes it possible that wasn't possible 10-15 years ago. Exactly Exactly A trust engine, a trust engine technology, which, okay.

Speaker 1: 28:49

So it's now possible to get more, not everything, but more remotely, to somehow store this data, trust the data, let it travel, let everybody that needs to see it look into it without tempering it. And there is the urgency of the larger companies because they're actually being hurt now in their supply chain. So it's not a CSR thing, it's not oh, maybe in 10 years it's partly even legislation thing in Europe now on certain crops, but it's not a I need to inset because I need to report on my scope three, et cetera. No, it's actually. Can I still buy oranges for?

Speaker 2: 29:24

my orange juice Exactly, it's a business continuity risk.

Speaker 1: 29:28

And so why don't they do that in-house? I think some of the companies you're working with are massive. What's holding them from? Okay, we are used to managed supply chains. We can just do this in-house and don't need to share that necessarily.

Speaker 2: 29:47

It's something that is very complex, something, as I said. It's this thousands, hundreds, thousands of suppliers that you need to manage. Of course, you can do that internally, but then you have to establish a system which is just serving your own purpose and whilst we just produce an infrastructure and maintain and improve and amend an infrastructure that can be used by anyone. That's the one thing, and the second thing is you also might come to a point where there is a lack of trust if the measurement has been done by yourself instead of by a third party. That in itself is being tested from the outside again.

Speaker 1: 30:41

And okay. So now we've established what is happening in the fields in, let's say, Ivory Coast or Ghana on the cacao side, or Spain or somewhere else for the oranges, how do we make sure changes happen for the good, not just because of climate change in the field, Like, do you go in there and advise Are you going to make the compost tea? How do we make sure money flows from these large companies that have not been able until now because they didn't know or they couldn't really figure out, of course, their value chain as well, but they haven't really been able to invest in their primary suppliers? How do we make sure they can? And then make sure something happens on the ground, something meaningful?

Speaker 2: 31:21

or to respect that the land steward usually is the best custodian of the piece of land and knows best how to treat the land properly in a regenerative way. This is not always the case, because some have lost the attachment that they used to have, but let's set aside and let's take this up after the first example. The first example is that most land stewards know exactly what they need to do to have their land prosper and thrive, so we don't prescribe what they need to do. However, there are good examples, good best practices they can follow. That's something we display display, but usually you have lots of on-site consultancies, best practice peers that they can refer to, so we don't prescribe the management practice they apply. We measure the outcome and that's absolute core and on DNA that we try and in some context it's not yet feasible. We hope technology evolves quickly. The ambition is always to measure the results, to measure the outcome and to leave this entrepreneurial freedom to the land steward. How to achieve the positive, the ecologically positive outcome. Who are we to decide if permaculture is the better answer? Who are we to decide which kind of grazing structure you follow? In your specific ecosystem this might be different.

Speaker 2: 33:07

We have a farm in Austria at 1,300 meters sea level. In Austria, at 1,300 meters sea level and we get an exact prescription how to farm our plots due to the subsidy scheme. But hey, we have very, very steep hills. We have a very specific climate because on our side it's very sun exposed. The opposite side of the valley is in the shade. It's completely different. So actually it should be up to us to decide what's the proper way to treat our land, and the intention and the ambition of the land banking group is to identify, via our measurements and our monitoring throughendler, to identify the outcome, and the payment to the land stewards is based on the measured outcome. So the investors invest into the outcome that is measured, and the absolute major chunk of this investment must go to the land. This is, of course, again a disintermediation approach that we say the money they pay for the nature equity is 80% should be going to the first mile. This is where the change happens, this is where the improvements and the custodianship is being performed.

Speaker 1: 34:34

And so who are the investors in this case?

Speaker 2: 34:37

These are the agri-food companies.

Speaker 1: 34:41

The agri-food companies are….

Speaker 2: 34:42

The investors in the nature equity. So it's, I don't know the Nestles, the Frosters, the Starbucks of this world list, the frosters, the starbucks of this world, chocolate companies who really want to ensure that the land management practices are resulting in a regenerative structure of the, the soil that they are building their, their business model on and you said there are three parts to it or three phases.

Speaker 1: 35:12

Let's say we are um yeah, where we are.

Speaker 2: 35:15

That was the first one, exactly. This is the first. So, let's, this is the first. The second is the urgency, like let's say the house is on fire.

Speaker 1: 35:23

Uh, customers, I can see that, and, and so now the first that's the first, and this is also true for other industries.

Speaker 2: 35:30

We have examples in construction. Real estate is another in value chain example that you have certain areas, for example in the north of Germany and the south of France, where drought, the lack of water, is endangering constructions and the permission to build residential or commercial buildings. So they are also concerned. Same is true for energy. They are very land intense, particularly the regenerative energy. So we have just a limited amount of land. It needs to serve for various uses and all those who have lands within their supply chain are increasingly being concerned.

Speaker 2: 36:12

Then we have beyond value chain, and beyond value chain is invest in natural capital that is not immediately be attributable to the benefit of your usual business case, and that's a difficult one. Whilst, sbti has released a new report with the recommendation to do beyond value chain mitigation, the BVCM proposal. So it should be part of the ambition of a company to invest beyond value chain. If you look into accounting standards, that's not being accepted as part of your assets. While the in-value chain can be capitalized if you want to, it's not required, but it can be capitalized as an asset on your balance sheet. This is different for beyond value chain investments.

Speaker 1: 37:05

This is one to double click on. So let's say the orange example or the cacao example, if I'm Mars or a big cacao player and I'm starting to invest in like what we said before, in large groups of cocoa farmers, land stewards, and they change practices and we measure it, et cetera, et cetera that I can use as an investment in my own assets even though I don't own the land. Yes, I use it as an investment in my own assets even though I don't own the land. Yes, even though I don't own.

Speaker 1: 37:34

Of course it's not an investment in my factory, or it's not an investment etc. Etc. But it's directly contributed and I can get I'm not saying away with it, but, let's say, my accountant or the accountancy firm will sign off on it. It's not just a CSR cost, it's not a cost line, but it's an investment in the asset, which makes it fundamentally different than anything we've heard until now in the world, because then suddenly it's an investment that will yield, because it's an asset that can be built over time, because it's soil, et cetera, et cetera, and trees grow, so that makes it potentially very attractive, just as investing in energy efficiency that we've all done over the last 15, 20 years.

Speaker 1: 38:09

So that's okay for the accountant, so that's very important.

Speaker 2: 38:19

I would say yes, that's the recommendation. It's always a case-by-case decision, so it's something we have tested with the big four, as long as you can attribute it to your value chain.

Speaker 1: 38:28

These are not big animals, people listening. These are the big four accountancy firms. Maybe people are thinking where's number five? But I mean they all merge constantly. That's not fair.

Speaker 2: 38:39

your value chain you can attribute this commercial value that you have and you could isolate this value and also take it out. You can activate it as an asset on your on your balance sheet so suddenly it's a cfo discussion and not exactly we supply which is already much better and way better than a marketing and csr discussion.

Speaker 2: 39:10

We need and that's absolutely essential to redefine our relationship with nature. We need to get it from the CSR report and the pictures and a qualitative discussion into a financial decision-making up in the front in the financial reporting. That's where we decide how we treat nature and this is absolutely fundamental ambition of what we're doing.

Speaker 1: 39:40

Again, here's. Some people cringe now and get very uncomfortable with how we treat nature, is decided in the accountant room, basically. But that's the fundamental discussion we need to have, because if we don't do it there, it has, unfortunately, zero value and or even less. And and like as always, the example is the tree is worth more when it's cut down in timber than when it's standing, creating rain, storing carbon and creating homes for birds. Unless we value that somehow, unfortunately it will be cut down at some point, and so okay. So that's in the first instance. That doesn't sound like a done deal, but at least there's urgency, which is great. The CFO might be on board and the accountant at least. If you want, there is a path to activate it as an asset and not as a cost. But in the second path, of course, that's way more complicated because it's not directly in your value chain. So how do you go about that?

Speaker 2: 40:41

And why is it important? So it is. I mean, we surely agree that it is important to invest beyond the value chain, but the question is, how can we get this in a significant scale into private investments, logic and schemes, and that's a difficult one. How can we attribute economic value? And for everybody cringing right now listening to this, we live in 2024 and we have not redefined success.

Speaker 2: 41:11

We are still measuring in GDP. We are still measuring in GDP. We are still measuring in money. We are still paying our own electricity bills and our rents, so somehow we need to get the money in for those who take care of nature, so they need to be paid for this, otherwise they need to exploit it to make their living. So in some way we live with the current system to transition into something that is regenerative and future fits and can serve future generations.

Speaker 2: 41:41

So, coming back to how can we get this into our understanding in a still shareholder, value driven economic system? And there are countries that have started to give a tax benefit if you invest in nature beyond value chain. Example Singapore. France is discussing a tax advantage if you invest in the health of soil. So this can be something where policymaking, and particularly tax incentivizing would support and to attribute an economic value to invest beyond value chain as an investment. This is not everywhere the case, so that's why I say it's a difficult one. We have first examples that go beyond philanthropy and this is actually a bone we are chewing on.

Speaker 1: 42:46

And so let's say, in France or in Singapore, how would it work in terms of tax advantage? Let's say I run a company. First one comes one michelin, in in france, I'm registered in france, and but of course I don't have my rubber trees in in france. So if I in fact like, how would that? So? For example, I say in.

Speaker 2: 43:04

I invest in the um high integrity forest in drc, gaboonon, brazil, suriname, where I don't get any rubber from. I actually have nothing in my value chain, but I know it is an important infrastructure for me as a company going forward. Because if the forest of Gabon falls, of DRC falls, the Nile River stops flowing, we will have hundreds of millions of refugees and an entire continent or the north of the continent will dry off, so another huge desert being developed. That's something everyone will suffer from. I cannot attribute this to myself as a company. Still, it's a hugely, hugely important investment into the future, also of my company, but in current accounting it would be impossible to attribute it to me. But if I have a tax advantage it has a financial implication and it can be added at least to my risk portfolio and it will be part of my financial reporting and it can even be an asset because it is a long-term investment which is of monetary value to me.

Speaker 1: 44:35

And that would be fascinating to see that the French accountants responding to that like how does that work? It could potentially unlock, of course, a huge amount of money that isn't available now at all for that, but of course it might also lower some taxes in France. So how would accountants already? Of course France is considering this in in france. How would like have accountants already? Of course they're not. France is considering this, so we don't know how that would play out exactly it's, it's not, it's as long as there is no legal um reference.

Speaker 2: 45:04

They don't even bother to yeah um.

Speaker 2: 45:08

So this is something we really need to work on. Currently, there is no direct contribution to a company. It can be looked upon differently if we look at it as an infrastructure investment and we have a mix of private and public investment, and again there is a question of how to attribute the benefits, and this is more of a project investment perspective that we then have to take still can serve as a collateral for these kinds of infrastructure funds, for green bonds that are connected to investments in these areas. This, however, is emerging.

Speaker 1: 46:04

And then the third, like where we want to go.

Speaker 2: 46:07

Yeah, that's what I meant with the funds, the infrastructure payment, that we really create big financial investment tools that cover various ecosystem types in different regions of the world and offer the opportunity for pension funds and big institutional investors to have risk diversified portfolios of investment in nature equity which grants them some kind of return in the long run with a long-term perspective outcomes that are based on improvement in the natural capital.

Speaker 1: 46:53

That's where the big money is basically.

Speaker 2: 46:54

Exactly.

Speaker 1: 46:56

The billions or the trillions? What's the next one, anyway, which is 10 zeros? And coming back to the first one, what can you share already concretely on the projects or the investment flows actually that have been happening or are happening or are going to happen, let's say, because of your work?

Speaker 2: 47:19

So let's take an example that is with you mean the InValue chain.

Speaker 2: 47:27

That is, a tea producer who knows exactly that supplying, procuring, not supplying, procuring rooibos, procuring mint is increasingly volatile. So they are very aware that they need to go into a risk partnership and they want to go into a risk partnership with their suppliers. They need to go into a risk partnership and they want to go into a risk partnership with their suppliers. And that's exactly the example I gave before. But currently this mint is not produced in a regenerative way. Currently this rooibos is not produced in a regenerative way and instead of just giving their land stewards a bit of money in the hope that they will change their practices, they go into an agreement and say okay, we pay you upfront an investment and this is a forward agreement to buy the measured natural capital once we have documented it. Once we have documented it, and then, year by year, we are willing to pay into this transition as we see these improvements materialize. We don't want to come and visit you and verify and control what you're doing. We want to see the outcome.

Speaker 1: 48:44

Have you filled out a lot of forms?

Speaker 2: 48:46

Yeah, yeah, exactly, and that's what's actually happening. Those first contracts have been signed, the first payments have been made to land stewards who are now changing practices, who are increasing intercropping, who are doing crop rotations, changing tillage and are introducing practices that are more regenerative, and are introducing practices that are more regenerative. As we have been here only for two years, I cannot give you a very profound delineation of results we see in the data, but the expectation is from everybody who has been involved in regenerative agriculture in the past that this will be um fundamentally easy to show and how fundamentally, or how significant, let's say, is it for the land steward until now, like in terms of of extra cash for him?

Speaker 1: 49:45

or her to, to change practices or just to have a livable, livable income you mean, how much money do they get?

Speaker 2: 49:52

Again, it depends on the context.

Speaker 1: 49:58

Is it one or two percent or 20 plus?

Speaker 2: 49:59

No, no, no, it's somewhere really, as I said, depending on region and crops, between 50, 60 to 300, 400 euros per hectare.

Speaker 1: 50:10

Which is significant. And then for the in this case the tea producer or the tea maker, let's say, or the blender, like how does their almost their margin or markup change, like, is this a massive investment to a company like that or is this, in the grand scheme of things, actually quite small, of course, if you look at other costs they have.

Speaker 2: 50:36

Yeah, I mean this, it is, it is significant, it's, it is an investment. Um, it is an investment in their business continuity and that's why I said it's so important that it comes out of the csr report into the financial report, because it is a big decision to take and it is a decision to justify to the owners, to the shareholders. And that's also why it's so important to not impose this additional cash outflow into the cost structure of the commodity, because it would twist the business case completely. If you can attribute it to a longer term improvement of the quality, the quantity and the reliability of your supply and you depreciate it over time, it's a different financial implication that you kick off.

Speaker 1: 51:31

Yeah, for instance, I mean, I mean just we've repeated this a few times but if it's an investment and but I just want to repeat it again as it's such a fundamental point if it's an investment in branding, in a factory, in machinery, and we wouldn't uh look twice or think twice to do that, if it makes financial sense over time could be 10, 20 years investment in, especially, buildings and other infrastructure. But we should consider nature the same, especially on on soil and trees and everything around it, because it has that kind of lifetime. We just have never pulled it almost into the the investment area, but it was always okay, let's give a bit of fair trade 10, 15, extra 20, maybe a lot of certification, a lot of costs, and at the end, yeah, nobody really. Um, I mean, it changed something, but it definitely didn't uh move the needle far enough, far enough, otherwise we wouldn't be in this, in this mess to begin with.

Speaker 1: 52:26

So just to to like hone down again on it's. The investment versus cost is an absolutely fundamental piece here, and apparently accountants start to see that, and companies as well, which means you can sell it to your shareholders, or you can at least present it and see what I mean. If you have very short-sighted shareholders, they might not agree on any investments in general, but that's another problem.

Speaker 2: 52:50

Exactly, that's a different story and, yeah, as you say, it's exactly this point. We are investing in all kinds of facilities that are essential to our business and if you have nature as part of your value chain, it's absolutely essential and we need to invest into the amendment, the improvement and the expansion and the maintenance, as we do for everything else.

Speaker 1: 53:21

And to ask a few questions. We always like to ask and to, because you talk to, for sure, a lot of investors either investing their own wealth or stewarding other people's wealth. Let's say, we do this in front of an audience in Munich or in London and of course, they're excited after this. They've learned a lot after this evening. But if there's one thing you want them to remember if there's a seed you want to plant that will grow into a 1000 year old tree, like if there's one thing you want them to remember if there's a seat you want to plant that will grow into a 1000 year old tree, like if there's one thing you want them to remember because of course, we also forget a lot of things as soon as we walk out of a theater and we have to get back to work we would like at least one thing to remain of the evening. What would that be?

Speaker 2: 54:00

I think the one thing is we should ask ourselves how we define success success for us individually and also success of investment. The immediate question people ask when I talk about nature as an asset class where is the, the cash flow coming back? What's my return? What's the return on investment in terms of a cash kickback? By the way, if you hold a piece of land which you hold physically, or you hold gold which you hold physically, but it's easier to imagine for us as very, very blunt and simple, blunt and simple species um, you don't get a cash back. It grows in value, it's the accrual of value yeah, but that's the.

Speaker 2: 55:06

The entire notion of investing in a piece of art is the accrual of value it's a store yeah it's a store of value. Early stage companies.

Speaker 1: 55:19

Yeah, but yeah, you're right but even there, like I've got people like because we're investing now with with a syndicate and we work okay, like the return comes, if it comes when, uh, the company is grown and it might be a partial exit at some point. It's not like in um, in a year there will be a regular flow of of returns immediately, or um, and in a piece of land it's the same. In real estate it's the same. Like we, it's very interesting how we treat nature completely different, even though it's an asset that can grow over time with maintenance and you can harvest.

Speaker 1: 55:52

which sort of makes it the ideal asset? It doesn't fall apart, exactly. It doesn't need maintenance in that sense as a building, which other asset grows over time with the right maintenance and you can harvest during that time harvest what you want, like in terms of animals and crops and etc. Like that's but somehow we have a blind spot for that in accountancy or in in spreadsheets. I think it's really fascinating, yeah we have.

Speaker 2: 56:15

We have somehow grown into that notion of it's there and in abundance and it's for free. 80% of 85% of land is managed. 60% is in private ownership. It's not there, it's not free, it's not to be taken as a given, but somehow we have grown into this notion of we can just use it, abuse it, extract it and move on, and it will when we come back next time it will still be there, we'll have regenerated.

Speaker 2: 56:49

But with eight billion people on on this planet, and soon 10, this is not true. It's not true anymore. And if we now have an ambition, even as humanity, to protect 30 percent um, it's even reduced the amount of available land to to take to take care of for our own needs, for energy, for food, for, for living. So the more it's super important that we take land use decisions properly prepared, data-based and with a right business case in mind, and this means it cannot be a linear, extractive business case.

Speaker 1: 57:34

And we saw each other at RFSI last week no, two weeks ago, sorry. And when you go to these kind of events, I'd like to ask a question that John Kempf always likes to ask what do you believe to be true? He asks us about general agriculture or about, let's say, old-fashioned agriculture, but we like to ask it about regen. What do you believe to be true about regenerative agriculture that others in this space don't? So where do you, where are you contrarian when you go to, let's say, in our bubble?

Speaker 2: 58:03

That's a difficult question to me because I'm not the bubbly region egg person. Um, the the thing that, um, I think you need to believe, um, true, is, on the one hand, regenerative agriculture is delivering um as good, um, or as much abundance as conventional. That's what you need to believe if you're in a conventional and need to transform. There is a lot of proof to it. But I've noticed, being a newcomer in this space, that there are some ideological concerns.

Speaker 2: 58:47

Again, my quest to make database decisions and that's, of course, one of the ambitions we have with the land banking group proving over time the results, the outcomes, to really show it's not an anecdotal, positive result, but it's systemic. So when you treat your land in a regenerative way, it will have this ecological power to continuously deliver high value, healthy, non-toxic food in sufficient amount. This is a remorse or a pushback that you usually get from conventional farming that we cannot feed 8 billion people in an organic and in a regenerative way. And where we collected data, so far, it looks like the opposite is true. Collected data, so far, it looks like the opposite is true. And from a conventional side, you need to believe this data to be ready to change and you need to break the patterns of your usual consulting, the usual consulting experts you trust, and open up to new ways of management. And again I hope we can quickly prove this to be the superior approach. Just database, because we can show the outcome of this way of management choice.

Speaker 1: 1:00:19

And if you would be not running the land banking group but in charge of a large investment fund or a large investment portfolio? Let's say a billion euros, which in these days and days doesn't even sound like a lot anymore, but when we started this series seven and a half years ago, it was a lot of money. What would you do if you? Of course, I'm not looking for exact euro amount or dollar amounts, but I'm curious what would you prioritize if you had a significant amount of money to put to work? It could be very long term. It has to be an investment. But if you had the freedom, let's say, to choose, would it go to technology? Would it improve remote sensing? Would it be buying a lot of land in very fragile areas or none of those? What would you prioritize if you had a billion to put to work?

Speaker 2: 1:01:07

or none of those? What would you prioritize if you had a billion to put to work? Considering the speed in which we are losing the remaining primary forests, the high integrity ecosystems, just from a scarcity perspective, I would put a huge chunk into the conservation. Would I buy the land? Um, probably not, because then a billion is nothing it's not going very far exactly so.

Speaker 2: 1:01:34

I would and that's, by the way, an example we have with one of the construction companies that is working with us I would invest into the incentive for the land stewards to just keep it up and running so, for example, indigenous groups reward them for their custodianship and support them in defending the pristine areas, the pristine areas. And I would just quickly step back and make a detour to the example I was just just pointing to. If we have an example of a of a construction company who did the natural capital accounting exercise with us for a plot they own and they they built on, and they just wanted to test if this is a value for a plot they own and they build on, and they just wanted to test if this is of value for a real estate market and real estate approach. And we ended this discussion with this very focused polygon where a new production facility is being built, and during the process we noticed well, first of all, it's once you look into it, not just from a legal standpoint and have I complied to all the policies that I need to comply to? But how can I build a facility which is future, fit in a changing climate?

Speaker 2: 1:02:59

So don't look into the rear view mirror but look into your front and into your windshield. Then you find out that the site will have a completely new context that it's working in. So with an increase of temperature, there will be more heat days, there will be more drought days. Temperature there will be more heat days, there will be more drought days. Collecting the roof water underneath in grey infrastructure sounds like a very progressive and interesting way to tackle the current situation. But if you really do the calculation, you do the math, you will find out in five years time it will not serve the purpose anymore. You will find out in five years time it will not serve the purpose anymore. So, all of a sudden, storing water or starting to invest in water holding capacity on ground in the areas where you do your parking lots, where you do your storage area, is suddenly valuable, certainly valuable. It's more expensive to invest into this kind of ground gravel, but it's valuable to have water holding capacity and to not be flooded in five years.

Speaker 2: 1:04:24

Exactly the climate hazards, the floods, the strong weathers. So all of a sudden it's super important to have a change of view. But it goes even beyond. The neighboring forest, which has actually not been of any interest because it's not their property, all of a sudden becomes super relevant because it has a high value of water storing, it has high water holding capacity and it reduces the surface temperature. So in five, eight years' time it will be very difficult to work in these factories. You'll have high cost of air conditioning and this can massively be reduced by having proper shade trees on the side and the forest around.

Speaker 2: 1:05:07

Exactly so, all of a sudden, investing, incentivizing the maintenance of the neighboring forest becomes part of the value of your own property, and this has never been part of our thinking, even though we love to travel in areas where it's nice.

Speaker 1: 1:05:33

Actually it's of high value to us us, but we've never paid for it. So this ecosystem perspective, like bringing tourism regions to your customers because they are I think there was a report coming out the amount of extreme hot days in certain cities I think it was specifically on Italy, like Rome, et cetera will suffer a lot. It are already suffering actually these years, because of course, the season is slightly larger at the beginning, like at the shoulder, because the winter is getting smaller, but at the same time, the hotness of the summer plus some regions will just get too hot for summer tourism. And and of course, we have the winter issues of the skiing being reduced, and everybody sees it in the news. If you're a skier, if not, you don't really care, um, but there there's an immediate issue at the other side is is the opposite issue, um, and and needs to be addressed.

Speaker 2: 1:06:21

Otherwise billions of euros or dollars would just evaporate literally, um, because people won't come anymore if it's 47 for too many days in a row, let's say absolutely, and tourism is part of of our, of our customer group and this is also in value chain, actually for them to invest into the surrounding and because this is where we want to go, we actually go on holidays to relax, to see the beauty of nature, to not cook and boil in a city, to go into mountains that are not disappearing under our feet. It's not only the snow, I mean, we also see the Alps partly being destroyed just by the avalanches of stones that are breaking off the sides.

Speaker 1: 1:07:10

And so, as a final question, which usually leads to other final questions, if you had a magic wand and you could change one thing overnight, what would it be?

Speaker 2: 1:07:20

I already placed this. Let's re-evaluate our definition of success, which to me is absolutely fundamental. Let's rethink how we define success. Disappear disinformation and polarizing misinformation on the extent to the threat of nature and the possibilities we have, particularly in land use choices we make to turn the tide.

Speaker 1: 1:08:03

And how do you see this? I mean it's partly the misinformation piece, but also um, the pushback of putting a price on nature one side from, I think, the, the environmentalist, but also we saw an example now and we're going to have them on soon again. As for a check-in interview, the intrinsic value exchange in the us got an enormous pushback on um on trying to list something on the nest egg from actually actually extreme right. They're coming to take our land like very interesting misinformation campaign and we're going to unpack that in another interview. But like what do you see in for you as? What pushback do you get, if any, honestly, and and how do we? And what and what does misinformation? What role does misinformation play in that?

Speaker 2: 1:08:49

So the pushback from the environmentalist side is indeed how can you really attribute a value to nature and you may not make it an asset because you're taking it away from the people, the land stewards. So the one thing, what I keep saying we have to distinguish between a tangible and an intangible asset. An intangible asset is what we are talking about. It's not taking away the land, it's valuing and rewarding the entrepreneurial stewardship of a land steward.

Speaker 1: 1:09:23

So be informed and not limiting.

Speaker 2: 1:09:28

So this is one aspect. The second aspect we touched upon before is the fundamental issue of putting a value on nature. I think it's a very maybe even cynical thing to say we may not do this. Um, this is from the warmth of our homes in very well established and um well-fed um societies. We cannot expect others to to somehow secure the last bit of nature we have without being rewarded for it. But but to reward them. We will not get there if we just count on philanthropic money. And then there is recurringly the call for more policymaking, more enforcement. That's the best way to get the pushback we see for DAC and the IED. Sorry, what?

Speaker 1: 1:10:26

are those.

Speaker 2: 1:10:29

From the far right that they say we don't want to be ruled by some kind of green imperialism. We don't want anyone to prescribe how we treat our land. To prescribe how we treat our land, that's a push for a perceived lack of freedom to take choices. And if we impose further or far reaching controls, first of all we get a pushback. We have political issues we already see it everywhere and of course we have a need. If you make rules, you need to enforce them. We need to have an enforcement, we need to have a control and enforcement. If we don't do this, it's worth zero and it's just causing uplift uprise. So I would rather recommend to unleash the human creativity, the urge to be entrepreneurial and inventive, by incentivizing investment in the creation of natural capital and in the maintenance of natural capital, because that's a positive spin and this definitely requires giving a value to it.

Speaker 1: 1:11:54

Yeah, it's fascinating. I hear a similar. We had a similar conversation with Emma Fuller, co-founder of Fractal. Very different setup, but also not prescribing practices to farmers. They can choose. They get rewarded if they do multiple practices, they get rewarded if they do multiple practices multiple years, but they can also come up with their own practices and once they get approved, so you have a freedom.

Speaker 1: 1:12:19

Because, again, who are we with our amazing remote sensing technology to tell you what to do on your land that you might've been been maybe for generations, in some cases not. In many cases, not anymore, unfortunately. But who are we to prescribe that? And I think that's an absolute, valuable point and valid point from much of the pushback, like another set of rules and another set of forms and another set of X and another set of Ys. That hasn't worked at all and we need to change the rules of the game and the accountancy rules, however unsexy that sounds, are fundamental to this. So I want to thank you so much for being here for the work you do and coming on here to share about it on this ongoing journey, I'm looking forward to follow it and, of course, check in every now and then to see where it's at and which investment flows have flown to the ultimate land stewards.

Speaker 2: 1:13:12

Has been a real joy to this conversation. Thank you, Koen.

Speaker 1: 1:13:22

Thank you so much for listening all the way to the end. For the show notes and links we discussed in this episode, check out our website investinginregenerativeagriculturecom. Forward slash posts. If you liked this episode, why not share it with a friend or give us a rating on Apple Podcasts? That really helps. Thanks again and see you next time.